Economy remains vulnerable given security risks: IMF

Daily News Egypt
4 Min Read
IMF executive directors welcome Egypt’s economic reform policies. (AFP Photo)
IMF executive directors welcome Egypt’s economic reform policies. (AFP Photo)
IMF executive directors welcome Egypt’s economic reform policies.
(AFP Photo)

Egypt’s authorities have started implementing policies to create growth and employment, as well as restore macroeconomic stability, said an International Monetary Fund (IMF) report released Wednesday.

The report is published as the executive board of the IMF has concluded the Article IV review with Egypt on 28 January, the report mentioned.

“Egypt is vulnerable to adverse global economic developments, regional security risks, domestic shocks and possible policy slippages, but upside risks could also materialise from a successful implementation of the authorities’ policies and reforms,” the report showed.

For the first time after the 25 January Revolution, the IMF mission visited Egypt in November to consult on Article IV of IMF guidelines and recent economic reforms by the government.

These include, most notably, the energy subsidies and tax system. As stated by the government, the importance of the mission lies in its leading-up to the Economic Summit in March 2015 to create a vision for healthy economic performance.

IMF executive directors have welcomed the “improved economic outlook” and supported the government’s plans to restore macroeconomic stability. They also welcomed Egypt’s focus on improving infrastructure and reforming the energy sector.

They have also supported the launch of a new cash transfer scheme and the reform of food ration cards, together with the government’s commitment to further improve targeting and increase benefits. They considered that the increase in public spending on education, health, and research, if managed wisely, can improve the quality and availability of public services and support long-term inclusive growth.

Directors saw a more flexible exchange rate, reflecting supply and demand and consistent with an adequate level of reserves, as a way to improve availability of foreign exchange for households and businesses. This would also strengthen competitiveness, support the current accounts, and attract foreign direct investment. In this regard, they welcomed the recent movements in the exchange rate as an important step in the right direction.

Directors noted that the economic situation remains difficult given regional and domestic security risks. In view of these risks, directors stressed the importance of building confidence and creating adequate buffers. This can be done by swiftly implementing the reform agenda, strengthening international reserves, and preparing contingency plans for the budget.

According to the latest IMF report on Egypt, the local political uncertainties have affected tourism and capital flows. Meanwhile, the banking system has been resilient to the shocks and has maintained profitability, low non-performing loans and high liquidity.

The IMF added that the GDP’s anticipated growth by 3.8% in FY 2014/2015 would create jobs and reduce unemployment, thanks to the so-far implemented economic measures along with some recovery in confidence.

The international lender said that fiscal consolidation will reduce the budget deficit to be less than 8% of GDP by FY 2018/2019.

“The adjustment is designed to preserve growth and inclusiveness: it accommodates the increase in spending on health, education, and scientific research mandated by the constitution, reforms subsidies to make them more efficient and equitable, raises taxes on high earners, and strengthens social safety nets through the development of cash transfer systems,” the report said.

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